EU chokes on Greek debt moussaka

Poland's banks are not saddled with Greek's increasingly toxic debt, like Germany's are – but the eurozone crisis has thrown plans for Poland to adopt the euro and drop the zloty into the deep freeze. (pictured: German Chancellor Angela Merkel)

Greek Prime Minister George Papandreou played his final card when he announced that the EU bailout plan – which would write off 50 percent of its debt in return for savage public spending cuts, that would make what the IMF used to ask of borrowing nations look like  proverbial peanuts – to a referendum in January.

Cue outrage and panic among eurocrats and the markets, who thought they had managed to solve the whole thing at the summit last week in Brussels. Stocks tumbled and the euro currency bombed on Tuesday.

It's hard to find much support for letting the Greek people have a say on how they are going to get out of the mess they are in. Bank of Canada Governor Mark Carney was a lone wolf when he said that Greece's bailout commitments need broad democratic support if they are to work. He said it was up to Greece to determine how to achieve public support for what the country needed to do going forward.

I think that's correct - although a delay until January will not calm jittery nerves. The EU bailout package with strings attached would mean even deeper cuts into Greek living standards than the already eye-watering austerity measures being carried out by the government in Athens are currently doing. More unrest and general strikes would follow. Anger at the political class would boil over.

Leader of Poland's opposition Law and Justice party, the eurosceptic (ish) Jaroslaw Kaczynski, said last week that he thought Greece should find a way to drop the euro and readopt the drachma, without causing a “financial shock” to the eurozone – which would be a tricky thing to pull off, to say the least.

Poland's finance minister Jacek Rostowski retorted that for Athens to drop out of the eurozone would require changes in EU treaties, which “is a long process” and would do nothing to restore confidence in the European single currency or the European economy in general.

There has been a good deal of smugness among the Polish government that Poland has not turned into the once Celtic tiger, now Celtic pussy-cat, Ireland … or Spain, or Greece. PM Donald Tusk never gets tired of trying to claim that Poland is a “green island” of calm surrounded by choppy and shark-infested seas. Admiral Tusk has steered the Good Ship Poland to the island through those rocky waters, with able-seaman (finance minister) Jacek Rostowski's firm hands on the tiller.

Poland, if I remeber correctly, would now be set to adopt the single currency if the Civic Platform government had kept to its schedule drawn up in 2007. It was only the finance crisis that sunk those plans - the same finance crisis that is torpedoing the eurozone, with Greece in particular taking one amidships (That's the end of the nautical metaphors.)

President Komorowski said this week that Poland still intends to enter the eurozone but only someone “not in his right mind” would ditch the zloty today.

Poland shouldn't feel so smug that it is not up to its knees in debt-doo doo, however. With Germany shelling out the largest share to bail out Greece, Berlin and Paris are going to be even more resolved to insist on even deeper cuts to future EU budgets. And as up to 2 percent of Poland's annual GDP growth comes, directly or indirectly, from funds from Brussels, that could leave Tusk et al with a moribund economy.

That's why even someone like the conservative Jaroslaw Kaczynski will only ever sound lukewarm about his EU scepticism – all Polish politicians know which side the bread is buttered.

They also all should realise the Greek tragedy could turn everyone's economies into a moussaka.